M/s Suraj Impex (India) Pvt. Ltd., V. The ACIT 4(2),

ITA 731/IND/2007

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0098 (ITAT-INDORE)
• Duration Of Justice: 1 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2009
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 24-08-2009
• Assessment Year: 2004-2005
• Appeal Filed On: 29-11-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: APARNA KARAN
• Assessee Lawyers: S S DESHPANDE; A KHASGIWALA CAS
• Keywords: Gift; Depreciation; Retrospective amendment; Corroborative evidences; Set aside
• Section: 80HHC; 234B; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI BHAVNESH SAINI, JM & SHRI M.L. GUSIA, A M ITA NO.731/IND/2007 AY 2004-05 M/S. SURAJ IMPEX (I) P. LTD., 111, SHRIVARDHAN COM., INDORE (PAN AACCS 3080 R) APPELLANT VS. ASSISTANT COMMISSIONER OF INCOME TAX, 4(2), INDORE RESPONDENT APPELLANT BY S/SHRI S.S. DESHPANDE & A. KHASGIWALA, CAS RESPONDENT BY SMT. APARNA KARAN, ADDL. CIT, DR O R D E R PER SHRI M.L. GUSIA, AM THE ABOVE APPEAL OF THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER PASSED BY LD. CIT(A)-II, INDORE ON 12.9.2007 FOR TH E ABOVE AY. 2. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PARTI ES AND HAVE GONE THROUGH THE MATERIAL ON RECORD AND CONSID ERED THE ORDERS OF AUTHORITIES BELOW. 3. THE FIRST GROUND OF APPEAL READS AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN NOT ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 80- HHC AT RS.39,74,394/- WHEN THE ASSESSEE COMPANY HAS COMPLIED WITH ALL THE REQUIREMENTS OF SEC. 80HHC EVEN AFTER THE AMENDMENT OF THE I.T. ACT. 2 1.1 THE DEDUCTION UNDER SEC. 80HHC MAY PLEASE BE GRANTED CLAIMED BY THE ASSESSEE. 1.2 THE ASSESSEE HAS FURNISHED COMPLETE DETAILS AS THE BASIS FOR COMPUTATION OF DUTY DRAWBACK CLAIMED AS AMOUNT RECEIVABLE UNDER THE DEPB SCHEME. THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE SAME AND ALLOWED THE ASSESSEES APPEAL. 4. FACTS OF THE CASE ARE THAT THE ASSESSEE IS PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF EXPORT OF GOODS MAINLY SOYA DE-OIL CAKE WHICH IS ALSO KNOWN AS SBM. THE MAJORITY OF THE SALES CONSIST OF EXPORTS. THE RETUR N OF INCOME WAS FILED DECLARING THE INCOME OF RS.1,47,17 ,620/-. IN THE COMPUTATION, THE ASSESSEE HAS CLAIMED DEDUCT ION OF RS.39,74,394/- U/S 80HHC. THE SAID CLAIM WAS MADE O N THE BASIS OF THE PROFITS AFTER CONSIDERING THE DEPB EXP ORT INCENTIVE OF RS.3,31,28,000/-. THIS CLAIM, AS PER T HE AR, WAS MADE ON THE BASIS OF THE INTERPRETATION OF THE THIRD PROVISO TO SUB-SECTION (3) OF SEC. 80HHC. WHILE FRA MING THE ASSESSMENT, THE LD. AO AFTER DISCUSSING THE PROVISI ONS OF SEC. 80HHC DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT FURNISHED THE NECE SSARY EVIDENCE TO PROVE THAT IT HAD AN OPTION OF DUTY DRA WBACK OR 3 DEPB SCHEME AND AS SUCH, THE CLAIM WAS NOT ALLOWED. THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) ON PAGE 7 AT PARA 2.4 OBSERVED THAT THE AO DID NOT ALLOW THE DED UCTION U/S 80HHC WITH REFERENCE TO THE AMOUNT CLAIMED TO B E RECEIVABLE UNDER THE DEPB SCHEME ON THE GROUND THAT THE OPTION OF CHOOSING THE DUTY DRAWBACK AS PER THE SCH EME WAS NOT AVAILABLE TO THE ASSESSEE. THE ASSESSEE ALS O ADMITTED BEFORE THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) THAT THE PRODUCT EXPORTED BY IT VIZ. SOYA BEAN MEAL DOES NOT FIND PLACE IN THE ALL INDUSTRY DUTY D RAWBACK SCHEME. NO NOTIFICATION IN THE OFFICIAL GAZETTE HAS BEEN MADE BY THE GOVT. OF INDIA DIRECTING THAT DUTY DRAW BACK SHOULD BE ALLOWED IN RESPECT OF SUCH GOODS AS PROVI DED IN SEC. 75(1) OF CUSTOMS ACTS, 1962 REFERRED TO BY THE ASSESSEE. IN NUTSHELL, THE ASSESSEE HAS NOT BEEN AB LE TO BRING ON RECORD ANY EVIDENCE THAT IT WAS HAVING AN OPTION TO AVAIL THE DUTY DRAWBACK AND AS SUCH, IT DOES NOT FULFILL THE CONDITIONS FOR AVAILING DEDUCTION U/S 80HHC WIT H REFERENCE TO THE AMOUNT OF DEPB CLAIMED AS HAS BEEN OBSERVED BY THE AO FOR DENYING THE DEDUCTION. THUS, THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) UPHELD THE ACTION OF THE AO DISALLOWING THE CLAIM MADE U/S 80HHC. 4 5. IT IS SUBMITTED BY THE LD. AR BEFORE US THAT UNDER THE EXCISE & CUSTOM ACT, THE ASSESSEE IS ENTITLED TO VARIOUS B ENEFITS ON EXPORT OF GOODS. FURTHER, UNDER THE CUSTOMS ACT AND FOREIGN TRADE POLICY, NUMBERS OF GOODS ARE MENTIONE D AND ALL INDUSTRY RATE OF DUTY DRAWBACK IS PRESCRIBED. O N THE BASIS OF THIS, THE DRAWBACK BENEFIT CAN BE OBTAINED BY AN EXPORTER. IF THE GOODS EXPORTED ARE NOT COVERED UND ER ALL INDUSTRY RATE, THEN THE EXPORTER IS REQUIRED TO APP LY FOR THE FIXATION OF BRAND RATE OF DRAWBACK UNDER RULE 6 OF CUSTOMS & CENTRAL EXCISE DUTY & SERVICE TAX DRAWBAC K RULES, 1995. ACCORDING TO THE LD. AR, UNDER THESE R ULES, THE ASSESSEE IS REQUIRED TO FILE VOLUMINOUS DETAILS AND AFTER CONSIDERING THESE DETAILS, THE RATES OF BRAND RATES OF DRAWBACK ARE REQUIRED TO BE ASCERTAINED. THIS PROCE DURE TAKES A VERY LONG TIME. THEREFORE, ACCORDING TO THE LD. AR, FOR THIS TIME CONSUMING PROCEDURE, THE KELKAR COMMI TTEE WAS APPOINTED AND THE OBSERVATION OF KELKAR COMMITT EE HAS BEEN REPRODUCED BY THE LD. COMMISSIONER OF INCO ME- TAX (APPEALS) AT PAGE 6 WHICH READS IN THIS REGARD, THE FINDING IS THAT STEPS HAVE BEEN RECENTLY TAKEN TO E XPEDITE THE FIXING OF BRAND RATE OF DRAWBACK ON THE BASIS O F THE EXPORTERS APPLICATION SUBJECT TO POST-FACTO VERIFI CATION. NOTWITHSTANDING IT IS OBSERVED THAT DELAYS CONTINUE AND IT IS 5 WORTHWHILE TO EXPLORE ALTERNATIVE TO GIVE RELIEF TO THE EXPORTER. 6. THUS, ACCORDING TO THE LD. AR, IN THE CASE OF BRAND RATE OF DRAWBACK, THE ASSESSEE HAS TO APPLY FOR DETERMINATI ON OF RATE OF DUTY DRAWBACK AND UNDERGO A LONG PROCEDURE. IF THE ASSESSEE DOES NOT WANT FOR DETERMINATION OF BRA ND RATE OF DRAWBACK THEN IT CAN APPLY FOR DEPB LICENCE WHIC H IS ALLOTTED UNDER THE SACHEM @1% OR 2% OF THE FOB VALU E OF EXPORTS UNDER NOTIFICATION NO.2 (RE-2003)/2002-2007 DATED 31.3.2003. (NOTIFICATION HAS BEEN REPRODUCED BY THE LD. COMMISSIONER OF INCOME-TAX (APPEALS) AT PAGE 5). TH E LD. AR HAS ALSO PLACED RELIANCE ON A VERY RECENT SPECIA L BENCH MUMBAI DECISION IN THE CASE OF TOPMAN EXPORTS ITA NO.5769/MUM/2006 PRONOUNCED ON 11 TH AUGUST, 2009, COPY OF THE SAME ALSO FURNISHED BEFORE US, WHEREIN ACCOR DING TO THE LD. AR, IT HAS BEEN HELD THAT DEPB BENEFIT ACCR UES TO THE ASSESSEE ON THE DATE OF APPLICATION OF DEPB IS FILED. THE SAME IS TAXABLE UNDER CLAUSE III(B) OF SEC. 28. THE LD. AR FURTHER SUBMITTED THAT THE HONBLE SPECIAL BENCH INTERPRETED THE WORD PROFIT IN SEC. 28 (IIID) AND HELD AT PAGE 42 THAT SEC. 28(IIID) INDICATES ONLY THE PROFI T ELEMENT ON THE TRANSFER OF DEPB IS TO BE CONSIDERED AND NOT THE SALE CONSIDERATION. THE LD. AR FURTHER SUBMITTED THAT TH E HONBLE 6 TRIBUNAL AT PAGE 48 PARA 55 DISCUSSED THE SCHEME OF DEPB IN RELATION TO SEC. 80HHC. AFTER CONSIDERING THE RE LEVANT PROVISIONS AND THE CASE-LAWS, THE HONBLE TRIBUNAL AT PAGE 73 PARA 73 HELD THE FACE VALUE OF THE DEPB UNDER TH E SCHEME FALLS U/S 28(IIIB) AT ONLY THE PROFIT ELEMEN T ON THE SALE OF DEPB FALLS U/S (IIID). THE LD. AR FURTHER S UBMITTED THAT IN THE LAST LINES OF THE SAID PAGE, THE TRIBUN AL OBSERVED THAT 90% OF THE FACE VALUE OF THE DEPB SHALL STAND INCLUDED WHEN EFFECT IS GIVEN TO THE FIRST PROVISO. ACCORDIN G TO THE LD. AR, THE DEPARTMENTAL VIEW ABOUT THE ENTIRE SALE PRO CEEDS TO BE COVERED UNDER CLAUSE (IIID) HAS BEEN CONTRADI CTED BY THE TRIBUNAL AT PAGE 75 PARA 75. THE LD. AR FURTHER SUBMITTED BEFORE US THAT THE HONBLE TRIBUNAL CONCL UDED AT PAGE 86 PARA 89 THAT SEC. 28(IIID) DOES NOT COVER T HE ENTIRE SALE PROCEEDS OF THE DEPB AND IN VIEW OF THIS DECIS ION, IT IS ARGUED THAT THE LD. AO AND THE LD. COMMISSIONER OF INCOME- TAX (APPEALS) WERE GROSSLY WRONG IN APPLYING THE PR OVISIONS OF SEC. 28(IIID) AND SEC. 80HHC(3) THIRD PROVISO. 7. WITHOUT PREJUDICE TO THE ABOVE, THE LD. AR FURTHER ARGUED THAT IN THE INSTANT CASE, THE SOYA MEAL HAS NOT BEE N INCLUDED IN THE LIST OF ALL INDUSTRY RATE DRAWBACK. FOR DUTY DRAWBACK, THE ASSESSEE IS EITHER REQUIRED TO APPLY UNDER RULE 6 OF CUSTOMS & CENTRAL EXCISE DUTY DRAWBACK RU LES, 7 1995, FOR FIXATION OF BRAND RATE OF DRAWBACK OR GET THE DEPB LICENCE UNDER THE ABOVE NOTIFICATION. THE ASSE SSEE HAS INSTEAD APPLYING FOR BRAND RATE OF DRAWBACK HAS APPLIED FOR DEPB. ACCORDING TO THE LD. AR, THE APPL ICATION FOR DEPB SCHEME ITSELF IS A PROOF AND EVIDENCE THAT THE ASSESSEE HAS CHOSEN THIS OPTION. THE LD. AR IN SUPP ORT OF ITS CONTENTION HAS FILED SECOND PAPER BOOK CONTAINING T OTAL PAGES 115 IN SUPPORT OF HIS ABOVE SUBMISSION. 7.1 HOWEVER, THE LD. DR VEHEMENTLY ARGUED THAT THE DOCUMENTS CONTAINED IN SECOND PAPER BOOK WERE NOT M ADE AVAILABLE TO THE AO AND THE DECISION OF SPECIAL BEN CH MUMBAI DATED 11 TH AUGUST, 2009 IN THE CASE OF TOPMAN EXPORT (SUPRA) WAS NOT IN EXISTENCE AT THE TIME OF COMPLETING THE ASSESSMENT ORDER. THEREFORE, THE SAM E REQUIRED TO BE CONSIDERED BY THE AO AT HIS LEVEL. 8. AFTER CONSIDERING THE DETAILED SUBMISSIONS MADE BY BOTH THE PARTIES, WE ARE OF THE VIEW THAT SINCE THIS IS A LEGAL ISSUE AND THE DOCUMENTS ARE FURNISHED BEFORE US FOR THE FIRST TIME, THEREFORE, ISSUE REQUIRES INVESTIGATION AT THE LEVEL OF THE AO IN THE LIGHT OF THE DECISION OF THE SPECI AL BENCH REFERRED ABOVE. THEREFORE, WE SET ASIDE THE ORDER O F THE AUTHORITIES BELOW ON THIS ISSUE AND RESTORE THE ISS UE TO THE FILE OF THE AO TO DECIDE THIS ISSUE DE NOVO WITHIN FIVE 8 MONTHS OF THE RECEIPT OF THIS ORDER FOR WHICH THE L D. DR HAS ALSO AGREED. THE ASSESSEE IS DIRECTED TO COOPERATE WITH THE AO FOR DECIDING THIS ISSUE. THUS, THIS GROUND OF AP PEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 9. GROUND NO.2 READS AS UNDER: 2. THE LD. CIT(A) HAS ERRED IN NOT DELETING THE INTEREST U/S 234B & 234C ON THE BASIS OF THE CIRCULAR OF THE BOARD AND THE FACT THAT THE DEMAND IS CREATED ONLY AFTER THE AMENDMENT OF THE ACT WITH A RETROSPECTIVE EFFECT. 10. THE ASSESSEE HAS AGITATED CHARGING OF INTEREST U/S 234B & 234C BEFORE THE LD. CIT(A). HOWEVER, THE LD. CIT(A) WITHOUT CONSIDERING THE CIRCULAR OF THE BCDT NO.2/2006 DATE D 17.1.2006 CONFIRMED THE ACTION OF THE AO OF CHARGIN G INTEREST UNDER THE ABOVE SECTIONS. THEREFORE, THIS ISSUE IS ALSO SET ASIDE AND RESTORED TO THE FILE OF THE AO, WHO WILL DECIDE THIS ISSUE AFTER CONSIDERING THE ABOVE CIRCU LAR OF THE CBDT WHICH HAS BEEN ISSUED AFTER AMENDMENT IN SEC. 80HHC R.W.S. 28 OF THE IT ACT AMENDED BY THE TAXATI ON LAWS (AMENDMENT) ACT, 2005 WITH RETROSPECTIVE EFFEC T. THUS, THIS ISSUE IS ALSO SET ASIDE TO THE FILE OF T HE AO WHO 9 AFTER CONSIDERING THE ABOVE CIRCULAR OF THE CBDT WI LL DECIDE THE ISSUE DE NOVO. 11. THIRD GROUND OF APPEAL IS THAT THE DISALLOWANCE OUT OF TELEPHONE EXPENSES, CAR EXPENSES AND DEPRECIATION O N CAR IS UNCALLED FOR REQUIRED TO BE DELETED. 12. THE FACTS OF THE CASE ARE THAT THE LD. AO MADE OUT ADHOC DISALLOWANCE ON TELEPHONE OF RS. 40,000/- CAR EXPEN SES OF RS.9,000/- AND DEPRECIATION OF CAR AT RS.30,000/- O N ACCOUNT OF THE PERSONAL USES OF THE TELEPHONE AND C AR BY THE MD OF THE COMPANY AS THE SAME WAS FOUND NOT WHO LLY & EXCLUSIVELY INCURRED FOR THE BUSINESS. THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE DE CISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF SAYAJI IR ON & ENGG. CO. VS. CIT, 253 ITR 749 WHEREIN AT PAGE 752, THE HIGH COURT HAS OBSERVED AS UNDER: THERE IS ONE MORE ASPECT OF THE MATTER WHICH REQUIRES TO BE CONSIDERED. THE ASSESSEE WHICH IS A PRIVATE LIMITED COMPANY IS A DISTINCT ASSESSABLE ENTITY AS PER THE DEFINITION OF PERSON UNDER SECTION 2(31) OF THE ACT. THEREFORE, IT CANNOT BE STATED THAT WHEN THE VEHICLES ARE USED BY THE DIRECTORS, EVEN IF THEY ARE PERSONALLY USED BY THE DIRECTORS THE VEHICLES ARE PERSONALLY USED BY THE 10 COMPANY, BECAUSE A LIMITED COMPANY BY ITS VERY NATURE CANNOT HAVE ANY PERSONAL USE. THE LIMITED C9OMPANY IS AN INANIMATE PERSON AND THERE CANNOT BE ANYTHING PERSONAL ABOUT SUCH AN ENTITY. THE VIEW THAT WE ARE ADOPTING IS SUPPORTED BY THE PROVISION OF SECTION 40(C) AND SECTION 40A(5) OF THE ACT . 13. IN VIEW OF THE ABOVE FACTS, THE ADDITION OF RS.40,0 00/-, RS.9,000/- AND RS.30,000/- ARE DELETED SINCE THE AS SESSEE IS A PRIVATE LIMITED COMPANY. HENCE, THIS GROUND OF APPEAL IS ALLOWED. 14. FOURTH GROUND OF APPEAL IS THAT THE DISALLOWANCE OF BUSINESS PROMOTION EXPENSES RS.25,000/- IS UNCALLED FOR. 15. FACTS OF THE CASE ARE THAT THE BUSINESS PROMOTION E XPENSES OF RS.3,77,665/- WAS CLAIMED ON THE BASIS OF INTERN AL VOUCHERS. THEREFORE, ADHOC DISALLOWANCE OF RS.25,00 0/- WAS MADE BY THE AO. THE LD. CIT(A) HAS DECIDED THIS ISSUE AS UNDER: 5.3 THE ISSUE IS CONSIDERED. THE APPELLANT HAS FILED THE DETAILS OF THESE EXPENSES. ON PERUSAL OF THE SAME, IT IS OBSERVED THAT THE SAME, INTERALIA, INCLUDES THE AMOUNT INCURRED ON PURCHASE OF GIFT ITEMS AS INSTANCES GIVEN BELOW: 11 DATE NARRATION AMOUNT (RS.) 25.2.2003 PUSHPA JEWELLERS AGAINST PURCHASE OF GIFT ITEM 8,200 31.7.03 -DO- 2,976 5.11.03 RAJAT JEWELLERS PVT. LTD., AGAINST PURCHASE OF GIFT ITEM 82,830 FURTHER, AMOUNT HAS BEEN CLAIMED BY STATING AS PER STATEMENT ATTACHED BUT THE DETAIL AND NATURE THEREOF IS NOT AVAILABLE/HAS NOT BEEN FURNISHED. THE AO HOWEVER OBSERVED THAT THE APPELLANT ONLY PRODUCED INTERNAL VOUCHERS WITHOUT ANY SUPPORTING EVIDENCE FOR INCURRING THESE EXPENSES. THESE OBSERVATIONS HAVE NOT BEEN REBUTTED BY THE APPELLANT IN HIS SUBMISSIONS. GENUINENESS OF EXPENSES AND THE FACT THAT THE SAME WERE INCURRED FOR THE PURPOSES OF BUSINESS ONLY IS, THEREFORE, NOT POSSIBLE TO VERIFY. THE DISALLOWANCE MADE BY THE AO OUT OF THESE EXPENSES IS LESS THAN 10% AND HENCE NO INTERFERENCE IS CALLED FOR. 16. KEEPING IN VIEW THE ABOVE FACTS BROUGHT ON RECORD B Y THE LD. CIT(A), THE DISALLOWANCE IS CONFIRMED. HENCE, T HIS GROUND OF APPEAL IS DISMISSED. 12 17. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 18. THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 28.8.2009. SD/- SD/- JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 28.8.2009 {VYAS}